ERISA doesn’t necessarily preempt state law bias claim based on LTD benefit plan

An employer and insurance carrier were unable to convince the First Circuit that ERISA preempted a state law claim of disability discrimination based on disparate disability benefits and thus also preempted a state administrative agency’s proceedings. Affirming the district court’s dismissal of their claim seeking a declaration that the administrative proceedings were barred, the appeals court found that abstention was proper since the civil enforcement proceedings resembled “criminal prosecutions in important respects,” the appellants had an adequate opportunity to raise their federal defense (preemption) in the state proceeding, and their preemption claim was not facially conclusive.

Employee files charge. This appeal arose from a prolonged legal debate concerning an employer’s long term disability (LTD) plan, which was underwritten by Aetna. The plan provided only 24 months of benefits to those who suffered from a mental disability as opposed to benefits until age 65 for those who had a physical disability. An employee whose LTD benefits were terminated after 24 months because his disability was due to mental illness filed a charge with the Massachusetts Commission Against Discrimination (MCAD) asserting disability bias under the ADA and state law. The employer and Aetna (appellants) moved to dismiss on the basis that the complaint was preempted by ERISA and that the ADA claim failed on the merits.

Preemption claim dismissed. Two years later, the MCAD investigator denied the motion. Two more years later, the investigator found probable cause and ordered the parties to attend conciliation. Almost six years after the employee filed his charge, a public hearing was scheduled. At that point, the appellants brought the instant action seeking a declaration that ERISA preempted the state law claim and any further MCAD investigation of the employee’s charge. The MCAD moved to dismiss on the basis of the doctrine of abstention, as set forth by the Supreme Court in Younger v. Harris. While the case was pending, the Supreme Court decided Sprint Commc’ns, Inc. v. Jacobs. The district court subsequently ruled that abstention was required and dismissed the case.

Abstention post-Sprint. In Younger, the Supreme Court held that a federal court must abstain from entertaining a suit that seeks to enjoin a state criminal prosecution so long as the state proceeding affords an adequate opportunity to raise the federal defense and abstention would not cause irreparable harm. In Middlesex County Ethics Committee v. Garden State Bar Association, the Court explained that a federal court must abstain when there is an ongoing state proceeding (judicial in nature) which implicates important state interests and provides an adequate opportunity to raise federal defenses. Finally, in Sprint, the Court held that only three types of state proceedings trigger Younger abstention, including the type at issue here: civil proceedings that are akin to criminal prosecutions.

The First Circuit extracted from Sprint a three-step approach to Younger abstention. First, the federal court must ascertain whether a particular state proceeding falls within the Younger taxonomy. If so, the court must then consider whether the Middlesex factors support abstention. If they do, the court must finally determine whether any exceptions apply.

MCAD proceedings fit the bill. The appeals court first determined that the MCAD proceeding fell within the Younger taxonomy as a civil enforcement proceeding resembling “criminal prosecutions in important respects” since the course of action field by MCAD satisfied the Sprint state-involvement and investigation criteria. Moreover, the proceeding was aimed at sanctioning the appellants for wrongful conduct. The fact that the employee initiated the proceeding by filing a complaint with the MCAD was not dispositive.

Where an individual who files a complaint with the MCAD chooses to rely exclusively on the agency’s processes, it prosecutes the charge and the primary purpose of any relief sought is to effectuate the goals of the state’s anti-bias law. The state-centric nature of MCAD proceedings was underscored by the fact that an aggrieved individual must intervene in the public hearing in order to advance his own claim. Unlike the proceeding at issue in Sprint, which was initiated to settle a private dispute and involved no state-driven investigation or formal charge, the MCAD proceeding exhibited all the essential hallmarks of a civil enforcement action that was more akin to a criminal prosecution than most civil cases. Thus, because the MCAD had jurisdiction to investigate and adjudicate the state law bias claim (if only to determine whether it was preempted by ERISA), the MCAD proceeding was plainly the sort of civil enforcement action that fit within the Younger design.

Middlesex factors. The Middlesex factors also supported abstention. The MCAD proceeding was judicial in nature and it implicated the state’s important interests in eradicating workplace discrimination. The appellants also had an adequate opportunity to raise their federal defense (preemption) in the state proceeding. Although they argued that the agency’s extensive delays deprived them of a meaningful opportunity to raise their defense, they never sought to invoke any available state judicial remedies to ameliorate the delay. Instead, they waited until the MCAD was finally ready to consider the preemption issue before seeking federal assistance.

Moreover, the MCAD had consistently acknowledged that ERISA preemption remained an open question in the case. Thus, there was no compelling reason to believe that if the public hearing were allowed to proceed, the MCAD would not effectively address that issue. And, if its ruling was not to the appellants’ liking, they could seek review in the state courts. That opportunity to present their federal claim was sufficient to satisfy the third Middlesex factor.

Preemption not facially conclusive. Finally, the First Circuit rejected the appellants’ assertion that their federal action fell within the exception to Younger abstention because their preemption claim was facially conclusive. Specifically, they argued that since ERISA undeniably preempted the state law discrimination claim, it also preempted the MCAD proceeding itself. This argument failed because the ADA arguably prohibited an employer from offering disparate benefits based on the type of disability that may afflict an employee.

Notably, the first Circuit had previously found facially inconclusive a nearly identical claim of preemption (a claim that ERISA preempted an MCAD charge that state law prohibited providing short-term disability benefits to employees with physical, but not mental, disabilities). In that case, the appeals court explained that when a federal statute indisputably preempts a state-law claim, preemption is facially conclusive whether or not the court had previously opined on the question. But when there is room for reasonable doubt, the preemption claim is not facially conclusive and cannot block abstention.

The ultimate issue here was whether the ADA conclusively permits an employer to offer disparate benefits based on the type of disability that may afflict an employee. The Supreme Court has never considered this issue. Moreover, some of the circuit court decisions upon which the appellants relied were made over strong dissents and many of them were decided before the Supreme Court’s Olmstead decision (which the MCAD claimed supported the viability of differential-benefits claims under the ADA).

Finally, the Fist Circuit’s prior opinions left open the possibility that an ADA claim based on differential benefits may be viable, and district courts in the circuit remained divided on this issue. In short, “resolving the preemption question presented here calls for exactly the sort of extensive legal analysis that places the facially conclusive preemption exception out of reach.”

Indeed, that no exception to the Younger doctrine applied here was reinforced by the appellants’ failure to explain how they would be irreparably harmed by allowing the MCAD to resolve this matter. Rather, the MCAD was competent to adjudicate the federal issues presented and adequate review was available in the state courts.